10 Predictions for 2023: No. 3 - The Elon Musk Portion of Twitter’s Saga Will Come to an End in 2023
He was forced to buy an asset that he didn’t want. He overpaid by $20 billion, and he’s managing it as if he wants it to fail.
(I’m making 10 predictions for 2023. Find the links to my others at the bottom of this post.)
One day in the life of Elon Musk’s Twitter is like a year at another company. Since acquiring Twitter in October, Elon has managed the social media business with a recklessness and volatility that even his most ardent critics couldn’t have predicted.
A story with this level of drama can’t go on forever. I predict that the Elon Musk portion of Twitter’s saga will come to an end in 2023.
Here’s my prediction for how it plays out:
1. Elon will manage Twitter by proxy.
Elon will soon replace himself as CEO with someone who will have no real power. Rather than choose an independent outsider to steady the ship and make the necessary changes to salvage his investment, Elon will replace himself with one of his sycophantic insiders, who will defer to Elon’s every whim and allow Elon to run the company by proxy.
2. Elon’s desire for attention continues to harm Twitter’s brand value for advertisers.
Whether ignorantly weighing on geopolitics, being the world’s most followed “reply guy,” or incessantly making off-color jokes, Elon will continue to use his Twitter persona, with its 123 million followers, to keep himself in the daily spotlight. Elon’s controversial and unpredictable brand being inextricably linked with Twitter’s brand will keep advertisers at bay.
3. Twitter’s user growth and engagement thrive while revenue stalls.
The combination of Elon-fueled drama, the novelty of ever-changing product features, and Twitter’s central role in American media and culture will make it hard for users to look away. Twitter’s higher-than-typical user growth since the acquisition will remain high into 2023, and engagement, as measured by time spent on the app, will grow even more quickly. User growth jumped more than 40% in the U.S. in the month after the acquisition compared to the same period a year earlier. However, according to reports, advertising revenue, which makes up more than 80% of Twitter’s overall revenue, has already taken a hit.
With advertising revenue declining, Elon needs more revenue drivers -- and fast.
Subscriptions won’t save the day. Early data suggests Twitter has converted fewer than 1% of its 238 million daily active users into Twitter blue subscribers. Even a wildly successful version of the program, converting a full 10%, would drive less than $750 million in annual revenue, less than 15% of the $5 billion Twitter generated in 2021.
4. Elon sells Twitter at a loss and perhaps tries to buy back some of Twitter’s debt in the process.
Elon bought Twitter at a steep premium to its fair market value. You could argue, based on back-of-the-napkin math suggesting a premium as high as 45%, that Twitter is worth around $25 billion.
He was forced to buy an asset that he didn’t want. He overpaid by $20 billion, and he’s managing it as if he wants it to fail.
In fact, his behavior has been so irrational that it's hard to imagine Elon isn’t optimizing for something that the rest of us aren’t aware of.
As the wealthiest man in the world, Elon Musk has options that most people don’t.
It is not inconceivable that if Twitter’s financial future were to look dire enough, Elon himself could buy -- at a steep discount -- some or all of the $13 billion of debt he loaded onto the company. That would eliminate the nearly $1 billion per year in interest payments that the company currently owes.
But, Elon didn’t become the world’s richest man by investing increasing sums into bad investments.
There is no reason that all of this has to happen in 2023, but an already declining business, looming interest payments, a potential recession, and pressure from Tesla shareholders to re-capture the attention of their company’s absent CEO, may force Elon’s hand in the next twelve months.
I’m making 10 Predictions for 2023. Read my others below.